NEWS / Foreign Exchange

Daily FX Commentary

Bank of England stance supports Sterling

Sterling rose above the 2.07 level against the dollar on Wednesday and, despite brief corrections, strengthened to new 28-year highs above 2.08 in US trading. The US rate cut improved UK yield support while dollar sentiment remained depressed. The UK also strengthened against the Euro on yield demand with profit taking on Euro crosses.

UK consumer confidence edged weaker to -8 in October from -7 which was the lowest figure since March. The PMI index for the manufacturing sector fell to 52.9 in October from a revised 54.7 the previous month which will reinforce expectations over a slowdown in the economy.

MPC member Blanchflower stated that the economy was slowing and he also suggested that the US Federal Reserve policy could have a significant impact on the Bank of England. In this context, the Fed rate cut will increase speculation over a UK move. Chief Economist Bean, however, reported that the bank must not be complacent over inflation and his generally firm remarks will tend to dampen immediate expectations over lower rates. Nevertheless, the overall economic risks are liable to increase with the risk of a sharp adjustment in sentiment.